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A Gaussian approach for continuous time models of the short-term interest rate

  • JUN YU

    ()

  • PETER C. B. PHILLIPS

    ()

This paper proposes a Gaussian estimator for nonlinear continuous time models of the short-term interest rate. The approach is based on a stopping time argument that produces a normalizing transformation facilitating the use of a Gaussian likelihood. A Monte Carlo study shows that the finite-sample performance of the proposed procedure offers an improvement over the discrete approximation method proposed by Nowman (1997). An em-pirical application to US and British interest rates is given.

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Article provided by Royal Economic Society in its journal The Econometrics Journal.

Volume (Year): 4 (2001)
Issue (Month): 2 ()
Pages: 3

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Handle: RePEc:ect:emjrnl:v:4:y:2001:i:2:p:3
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  26. Andersen, Torben G. & Chung, Hyung-Jin & Sorensen, Bent E., 1999. "Efficient method of moments estimation of a stochastic volatility model: A Monte Carlo study," Journal of Econometrics, Elsevier, vol. 91(1), pages 61-87, July.
  27. Conley, Timothy G, et al, 1997. "Short-Term Interest Rates as Subordinated Diffusions," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 525-77.
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